Developing countries are different from developed ones.
Formulating economic development strategies for them often requires ignoring orthodoxy that emerged out of the developed economy experience.
Here are a few I’ve discussed over the past year 👇
Any others?
Formulating economic development strategies for them often requires ignoring orthodoxy that emerged out of the developed economy experience.
Here are a few I’ve discussed over the past year 👇
Any others?
1️⃣ Maximizing consumption in the long run should be the ultimate goal of economic developement.
For developing countries, the emphasis should be on the “long run”.
For developing countries, the emphasis should be on the “long run”.
Maximizing consumption in the near-term may be a reasonable strategy for a mature, developed economy that has already achieved relative abundance.
But maximizing consumption in the near-term may not be the optimal path to maximizing consumption “in the long run” for developing economies.
Figuring out the right mix between consumption and investing, at that particular stage in time, is the key challenge.
Figuring out the right mix between consumption and investing, at that particular stage in time, is the key challenge.
2️⃣ By definition, a key problem developing countries face is scarcity.
Tackling scarcity is more of a supply-side than demand-side issue.
The demand for a better life is there, it’s just not affordable for all at developing country levels of productivity.
Tackling scarcity is more of a supply-side than demand-side issue.
The demand for a better life is there, it’s just not affordable for all at developing country levels of productivity.
Underpinning supply-side strategies is productivity improvement through a variety of ways:
▪️ Human capital increase
▪️ Investment in factory equipment
▪️ Incorporating technology
▪️ Process improvement
▪️ Etc.
▪️ Human capital increase
▪️ Investment in factory equipment
▪️ Incorporating technology
▪️ Process improvement
▪️ Etc.
3️⃣ The law of diminishing returns applies, but hits differently for developing countries.
The aforementioned scarcity means there is a much longer tail of worthy projects that need working on.
The key question is how quickly, and in what order those projects can be tackled.
The aforementioned scarcity means there is a much longer tail of worthy projects that need working on.
The key question is how quickly, and in what order those projects can be tackled.
4️⃣ Developing countries are focused more on the bottom of Maslow’s hierarchy.
It is a helpful heuristic to prioritize development efforts.
It is a helpful heuristic to prioritize development efforts.
5️⃣ Developing countries are not in their final form and need to go through multiple stages before maturing.
Strategies that work in one stage may not work well in the next.
So development strategy is very stage-specific and pivots are risky.
Strategies that work in one stage may not work well in the next.
So development strategy is very stage-specific and pivots are risky.
Taiwan and Korea were fascinating development stories because they had to make multiple policy pivots as they shifted focus from agriculture to industrial to technology.
6️⃣ Optimal development strategies may vary based on different labor & resource starting conditions.
In particular capital investment makes more sense for developing countries that suffer from lack of land and natural resources relative to their populations.
In particular capital investment makes more sense for developing countries that suffer from lack of land and natural resources relative to their populations.
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